MS Studios are obviously working on something and independent developers are still publishing on XBLA. That's really not in question.
The issue is that those development resources are being largely poured into Kinect games as there is no debate that MS has shifted focus into expanding their market through the same type of family games, children's games, etc. that were responsible for expanding Nintendo's audience with the Wii.
Where does everyone realistically think those record hardware sales are coming from? Rhetorical question; it's from Kinect sales.
While there's no reliable way to track this kind of thing, I wouldn't be surprised at all to hear that a significant percentage of new Xbox 360 owners (first time buyers) who bought a Kinect bundle did so to replace that Wii that's no longer being used.
It's been well over a year now and the market still hasn't seen any Halo Kinect virtual simulator much less an all new IP custom tailored for the core audience. When Dance Central is one of the best merits showcasing the success of Kinect as a new platform, that about says all one needs to know about where both the focus and the audience is for Kinect.
As for XBLA, DD budget games provide massive variety when it comes to game selection, providing plenty of alternatives to buying new release retail games at $60 each. That said, I don't know know of many people buying consoles because there was an exclusive XBLA or PSN DD title that they felt was so compelling that they were convinced to adopt a new gaming platform and buy another game console for the living room. Truth is, I don't know of anyone who bought a console to play a downloadable budget title.